The economic problems of many Asian countries are now well
known: high current account deficits, excessive private sector debt, crony
capitalism (which is clearly not just an Asian, or even "Third World,"
problem---even the U.S. has its "Old Boy Network"), oligopolistic
industrial structures and closed markets, high
levels of corruption, and undemocratic political systems. These are real
problems requiring reform in the existing social formation---economic,
political and cultural institutions are all in need of coordinated reform,
greater accountability and transparency, and more flexibility. Thus, the
question is not whether or not the crisis in Asia is grounded in real
economic, political and cultural factors, but rather why did the crisis
happen now, rather than five or ten or fifteen years ago. I believe the
answer lies outside of Asia and in the geopolitics and economics of what
might be called "Western capitalism."

Capitalism has not changed as dramatically as some social commentators
would have us believe. Capitalism remains founded upon the deployment of
capital for the purpose of generating profits from the productivity of
workers, past and present. Capital is a social construct. It is the
embodiment of past economic relationships within which claims to assets
were acquired, recognized by law and/or social convention, and made
transferable across time and space and between persons and institutions.
From the contemporary periods of slavery and colonialism, global capital
has been concentrated within the so-called Western nations, mostly the
United States, Britain and Western Europe. This concentration of capital
is reflected in the role of the U.S. dollar, in particular, as an
international medium of exchange and store of value. All nations seeking
access to the fruits of contemporary technological progress (so-called
high technology), as well as many basic inputs (such as petroleum) must
obtain access to capital in the specific form of hard currencies, the
hardest of which is the U.S. dollar. The competition for hard
currency-denominated capital is fierce and international in scope.
Success at this competition means gaining access to the technological and
raw material inputs required to be competitive in a global economy and to
finance industrial transformation, a condition for sustained economic
growth and improved living standards.

For most of the period since the end of World War II, geopolitics was
dominated by the competition between the Soviet Union and other nations
governed by communist parties and the United States and its NATO allies.
International economic relationships were strongly influenced, even
dominated, by the tensions and strategies generated within this bi-polar
competition. Thus, in order to "contain communism," Japan (and the Federal
Republic of Germany) was given preferential treatment by the U.S.
government: special access to U.S. technology, markets, and, most
importantly, capital. Firms in Taiwan, South Korea, and, particularly
during and after the war in Viet Nam, Thailand profited from U.S. military
spending and technology transfer policies, as well as relatively
unfettered access to the U.S. market for their exports. Indonesia,
Malaysia and Singapore similarly benefited from Cold War politics. During
the Korean and Viet Nam war periods, billions of U.S. dollars (hard
currency) were injected into many of these economies, particularly Japan
and South Korea, as part of the U.S. military procurement strategy, but
with clear economic motivation, as well. These funds provided Japanese,
South Korean, Taiwanese, and other local area firms with guaranteed
markets and much needed hard currency revenues. Thus, an important factor
in the economic success of these so-called miracle economies (Aren't
miracles supposed to be acts of God?) was the special international
relationships generated by the Cold War.

Of course, politics and economics are not neatly separable social
phenomena (despite the academic tendency towards compartmentalization)
and the conflict between the so-called Eastern bloc (Cuba and China
included) and the West was not simply about political differences, but was
shaped, in part, by the closed nature of the so-called communist economies
(economies that were, ironically, dominated by the same wage-labor
capitalist relationship that prevailed in the West): the political
leadership of these nations refused to open their economies to the
penetration of Western capital and threatened to extend the space within
which this exclusion was effective. Thus, the directing of capital to
strategic allies was not only important for political reasons but also
served the long-term economic interests of Western capitalists, who had a
strong interest in defeating a system that was partly founded upon denying
the free movement of capital across international borders. The irony, of
course, is that the political and economic importance of defeating the
Eastern bloc overrode the desire to open up the economies of strategic
allies, such as Japan, South Korea, etc. It became acceptable for these
strategic allies to simultaneously pursue an import-substitution path to
industrialization by subsidizing domestic firms and restricting foreign
penetration of (and thus competition within) domestic markets (these
restrictions were/are often in the form of regulations rather than being
tariff-based) and an export-oriented path of selling as much as possible
(even if this included the strategic use of dumping) into the United
States market. It was the ability to pursue this dual strategy (and to
benefit from U.S. military ventures in the region) that allowed for the
dramatic transformation of the so-called miracle economies of East
Asia.

What has changed? Why did the Asian economies lose this economic
development "sweet spot"? The collapse of communist party domination of
Eastern Europe and the total collapse of the Soviet Union were the
beginning of the end of the Cold-War model of economic development that
had served East Asia so well. The opening up of Eastern European nations
and even Russia to foreign capital marked the final blow to the Cold-War
model. Suddenly, not only was the strategic rationale for special
treatment of Japan, South Korea, Thailand, etc. lost, but a whole new set
of social formations were now competing with East Asia for Western
capital. The process of shifting capital from East Asia to the newly open
economies of Eastern Europe and Russia was slow but continuous and
decisive. As transnational firms and rentiers discovered that these
"transitional" economies might, indeed, be serious about a more
free-market form of capitalism, they began to compare opportunities in the
Eastern bloc to opportunities in Asia. The deeper the opening of these
transitional economies and the longer the time frame within which this
process occurs, the lower the risk premium for investing there and the
more favorably these economies appear vis-a-vis East Asia, even if
temporarily. At the same time, and perhaps even more importantly, economic
and political trends have improved the profit prospects for investment in
the more mature economies of Europe and North America. Thus, more capital
is "staying home" than might otherwise be the case. It is this overall
shift in the flow of capital, like the gradual influx of water into the
Titanic, that set East Asia on the course to the current economic crisis.

The overdetermined links between the Asian nations exacerbated the
effects of the shift of global capital away from Asia: the weakest links
in the old Cold War model, in particular Thailand, infected the other
links in a chain reaction of growing force. The Southeast Asian nations
are intimately linked together, but they are also competitors in the
global marketplace, particularly for sales to the United States, Japan,
and the European NATO countries where the much needed hard currency is to
be found. To make matters worse, these Cold-War-fed economies, including
South Korea, had become dependent upon access to easy hard currency
capital and the ability to continually increase exports to the U.S.,
Japan, and the European NATO countries for further injections of hard
currency.

The domestic
economies had become addicted to these hard currency flows and the
financial institutions of these nations had learned from experience that
lending with relative impunity, including hard currency loans, was the
optimal path to profit maximization. The combination of Cold War economic
dynamics and the related ability of regional governments to subsidize
both financial and industrial expansion (and to maintain protectionist
policies) virtually guaranteed that this path to profit maximization
would be a smooth one, albeit one with an overabundance of moral hazards
along the way. This model could continue to work only so long as the hard
currency fix was forthcoming.

The pressure on the capital account that resulted from intensifying
global competition over capital and markets (particularly the U.S. and
other NATO markets), coupled with the continued stagnation of the Japanese
economy, eventually opened the flood gates in the form of a speculative
attack on the Thai baht and then, in the aforementioned chain reaction, on
the other regional currencies.